PepsiCo Beats Earnings: What You Need to Know

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PepsiCo delivered solid earnings during the second quarter of 2014. Strong sales performance and productivity enhancements bode well for investors in the company over the years ahead.

PepsiCo delivered solid earnings during the second quarter of 2014. Strong sales performance and productivity enhancements bode well for investors in the company over the years ahead.

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  • 1. PepsiCo Beats Earnings: What You Need to Know Source: PepsiCo
  • 2. Strong Financial Performance ✓ Total sales came in at $12.89 billion, a 0.5% increase versus the second quarter in 2013, and roughly in line with analysts’ expectations. ✓ Core earnings per share came in at $1.32, an annual increase of 9% in constant currency, and materially better than the $1.23 per share forecasted on average by analysts. ✓ In a sign of confidence, management raised its constant currency earnings per share growth forecast for 2014, from 7% to 8%.
  • 3. Positive Assessment “I believe our results reflect the hard work we've done over the last several years to position our business for sustainable success. Specifically, our investments to strengthen our brands, innovate more effectively, expand our geographic footprint with strategic acquisitions, drive better execution and operate more efficiently by leveraging our global scale and complementary product portfolio. Today these actions and investments are producing consistent tangible results.” Chairman and CEO Indra Nooyi
  • 4. Revenue Drivers Organic revenue grew 3.6% versus the same quarter in the prior year, with global snacks growing 5% and global beverages organic revenues increasing 2% during the period. Price pack revenue management allowed PepsiCo to gain 3% in effective net pricing during the quarter. Emerging markets posted strong organic sales growth of 8% versus the same quarter in the prior year. Innovation accounted for 9% of net revenue during the quarter.
  • 5. Segment Revenue Source: PepsiCo
  • 6. Frito-Lay North America Solid performance, with organic revenue growth of 2% and core constant currency operating profit growth of 5%. Lay’s, Doritos, and Cheetos, each posting revenue growth in the single-digits. Core operating margin expansion of 80 basis points during the quarter in spite of increased marketing and advertising expenses.
  • 7. Quaker Foods North America Core constant currency operating profit growth of 5%. Operating margin expanded 155 basis points. The company gained share in each of its key categories: Hot cereal, ready to eat cereal, and snack bars.
  • 8. PepsiCo Americas Beverage  In North America, non-carbonated beverage volume grew 1% and carbonated soft drink volume declined 2%.  Latin America organic beverage volume increased 3% during the quarter. Core operating profit margin increased 25 basis points.
  • 9. What Coca-Cola Is Saying About Soft Drinks “We're seeing a number of encouraging signs across our global operating system. In the second quarter, brand Coca-Cola grew 1% in North America along with solid 3% sparkling price mix. We saw improving volume growth across several key markets in Europe. Eurasia and Africa continue to deliver balanced volume growth. Key markets in our Asia Pacific operations delivered strong performance including 9% growth in China, double-digit growth in India and 1% growth in Japan and we saw steady execution in the face of a challenging macro environment in Latin America” Muhtar Kent - Chairman and CEO of Coca-Cola
  • 10. Emerging Markets Organic revenue increased by a big 8%, led by low-double digit growth in China, high-single digit growth in Brazil, and mid-single digit growth in Russia. Revenues in Mexico are under pressure due to tax increases translated into higher prices. Volume decline in snacks moderated sequentially during the quarter, while beverage volume returned to growth.  The EMEA region was driven by double-digit organic revenue growth in Thailand, followed by Egypt and the Philippines, which also grew in the double-digits.
  • 11. Productivity Program PepsiCo has launched a five-year, $5 billion productivity program centered on four key areas. 1. More automation in operations to replace labor with capital. 2. Expanding shared services for the handling of routine back office transaction processing. 3. Restructuring manufacturing to optimize the company´s global manufacturing footprint. 4. Restructuring the go-to-market systems to optimize the company’s distribution network.
  • 12. Foolish Takeaway ✓ PepsiCo delivered solid financial performance for the second quarter of 2014, driven by strong snack sales, pricing gains and healthy demand in emerging markets. ✓ Both PepsiCo and rival Coca-Cola reported stabilizing carbonated drinks sales in North America. Demand for soft drinks remains quite encouraging in emerging markets. ✓ Strong sales performance and productivity enhancements bode well for investors in PepsiCo over the coming years.
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